Wolfgang Schäuble rules out Greek debt relief

17 April 2016
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The intervention on the sidelines of the IMF’s spring meetings in Washington highlighted the growing tensions between the fund and its European bailout partners over Greece, which is now in its sixth year of an economic rescue programme.

It came as the IMF warned again that it would not be able to participate in any bailout for Greece without meaningful long-term debt relief and raised the possibility that it would not contribute financially and adopt only a monitoring role.

Schäuble called the debt relief issue a distraction from the need for other tough reforms and said it was “not necessary”. “That is indisputable,” he said on Friday. “That is an attempt not to do what irrefutably must be done.” But he also said it was inconceivable that an €86bn bailout of Greece negotiated last year could proceed without IMF participation.

Speaking to the Financial Times ahead of a meeting with his German counterpart, Euclid Tsakalotos, Greece’s finance minister, said he was confident a deal on fiscal measures with the IMF and its European bailout partners could be reached by the end of next week. But he also said Mr Schäuble was proposing an impossible trinity that would have to break.

“Schäuble is committed to three things that aren’t possible at one and the same time: we must have a deal, the IMF must be on board, we don’t need to give anything on debt. Those three things are mutually inconsistent. One of those three is going to break. Either we won’t have a deal, or the IMF won’t be on board, or we’ll have something on debt,” he said.

Poul Thomsen, head of the IMF’s European department, said the fund’s continuing negotiations with Greece and European bailout monitors were still focused on fiscal reforms and had not yet moved seriously on to the issue of debt relief. “These debt discussions have hardly started,” he said, an indication that talks are still likely to drag on for weeks if not months.

The problem with this argument lies in Berlin. German officials long ago lost trust in the Commission’s ability to keep Greece on the straight and narrow. That suspicion has only been reinforced by the greater fiscal laxity allegedly granted by Jean-Claude Juncker, the commission president, to rulebreakers in Italy and France.

Thomsen insisted again that the IMF would not be able to take part in the new Greek bailout without meaningful debt relief. He also said, however, that the IMF was open to a “menu of options” and that achieving debt relief did not necessarily mean a reduction of principal owed. “One can achieve it without a haircut if that’s desirable,” he said.

The IMF is under pressure from many of its non-European shareholders not to grant Greece any special treatment after bending its rules to participate in previous bailouts. That has put an emphasis on bringing Greece’s debts down to levels the fund can label sustainable.

But any debt discussions are unlikely to begin before Greece hammers out a deal with the IMF and its European creditors for a package of fiscal reforms.

Source: FT

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